Bangladesh is moving toward a new loan program worth $4 to $4.5 billion with the International Monetary Fund (IMF), dropping the lender's ongoing multi-billion dollar credit facility, according to the Ministry of Finance.
Confirming the development in a press release issued on Monday (May 25), the decision was conveyed during a high-level virtual meeting held last Thursday (May 21) between government officials, led by Finance Minister Amir Khosru Mahmud Chowdhury, and IMF Deputy Managing Director (DMD) Nigel Clarke.
Bangladesh, IMF agree to work on new reform-focused programme
Central Bank Governor Md. Mostaqur Rahman, Finance Secretary, Md. Khairuzzaman Mozumder, and other top officials were also present at the meeting.
The Ministry of Finance stated that discussions on initiating a new three-year program with the Washington-based lender are underway. The upcoming program will incorporate realistic structural reforms to be implemented in a phased manner. According to the ministry, IMF DMD Nigel Clarke welcomed the government's fresh initiative.
Explaining the shift, Finance Minister Amir Khosru noted that the ongoing program was adopted under a completely different economic and policy environment. Subsequent domestic shifts, political economy dynamics, and global uncertainties created significant challenges in implementing some of the rigid reform targets.
"The government has no intention of backing away from economic reforms. Rather, we want to implement practical, phased reforms that align with the ground realities of our country," the Finance Minister was quoted as saying in the official statement.
Ministry officials acknowledged that Bangladesh has fallen behind on several critical benchmarks stipulated under the existing arrangement. Progress has been notably slow in boosting revenue collection, executing VAT reforms, slashing tax exemptions, and modernizing the tax administration.
Furthermore, the central bank has not fully transitioned to a market-driven foreign exchange rate, and the government has held back on aggressively reducing energy and electricity subsidies.
The IMF has also expressed strong dissatisfaction with the lack of progress in the banking sector—particularly regarding weak bank restructuring, non-performing loan (NPL) management, corporate governance, and the delayed Bank Resolution Act.
With less than a year remaining for the current loan tenure, top finance division officials admitted that meeting these tough targets within the remaining timeframe is highly unlikely. A new program will essentially buy the current government more time to carry out necessary structural adjustments smoothly.
Following the IMF's initial nod on Thursday, the Finance Ministry is currently seeking formal policy approval from the highest tier of the government. Once approved, Dhaka will dispatch an official letter to the IMF detailing the logical grounds for exiting the current framework and initiating the new $4-4.5 billion program.
An IMF mission is expected to visit Dhaka in July or August, the first months of the upcoming 2026-27 fiscal year, to negotiate the specific terms and conditions of the new package.
Commenting on the development, Dr. Zahid Hussain, former Lead Economist of the World Bank's Dhaka office, said that the government is essentially "buying time" through this transition.
"The reforms that Bangladesh failed to deliver under the current framework will inevitably resurface in the new one, as these changes are fundamentally necessary for Bangladesh's own economic health," Dr. Hussain observed.
He added that apart from gaining an extended timeframe to execute the exact same economic overhauls, it remains to be seen what additional benefits the new program's contents will offer.